CFED Reports NC Tax-based Subsidies are Increasing

CFED Reports NC Tax-based Subsidies are Increasing

North Carolina needs further accountability on economic development spending

A new report examining North Carolina’s economic development spending says that while state spending is rising sharply, tax breaks are growing to represent nearly all of the state’s economic development stimulus.  The report, released today by the national nonprofit Corporation for Enterprise Development (CFED) was previewed yesterday in testimony before the North Carolina Joint Select Committee on Economic Development Incentives by authors Bill Schweke and Frank DiSilvestro.  

The report, At What Cost?: North Carolina’s “Budget” for Economic Development is a preliminary reexamination of the North Carolina’s Fiscal Research Division’s recent “Economic Development Inventory.” The analysis revealed trends that are critical to understanding the substance of North Carolina’s economic development strategy.  Chief among these trends is that tax-based subsidies are the fastest growing piece of the economic development pie. Tax incentives currently represent 90% of the state’s economic development spending in 2006-2007, up from approximately 77% in 1995-1996. 

Economic development is a growing state priority, since its “budget” for tax-based measures and General Fund expenditures roughly doubled since 1996. Comparing tax incentives for economic development against other state expenditures such as Smart Start ($200 million) and the Earned Income Tax Credit ($50 million) also shows the relative importance of this policy area. 

“The ‘Economic Development Indicator’ report is an important first step for improving our business incentive efforts, but before the state can improve the system it needs a much clearer idea of what is happening now,” said CFED’s Bill Schweke, the report’s author.  “By making the system transparent, North Carolina has an opportunity to step to the forefront of this issue and become a national leader in fiscal accountability around incentives.”

CFED’s recommendations to the Joint Select Committee included making the “Economic Development Inventory” a regular biannual event, improving it to look at spending by strategic area, such as agricultural development versus entrepreneurship versus training, and developing evaluation measures to understand what purpose subsidies have played in terms of bringing a business to the state or generating economic growth.  

To download a copy of At What Cost, please visit http://www.cfed.org/imageManager/_documents/nc/at_what_cost.pdf